J. Bradford DeLong's Blog, page 1137
October 13, 2014
Morning Must-Read: Joe Romm: NASA: Hottest September On Record Globally Pushes 2014 Closer To Hottest Year On Record
Joe Romm: NASA: Hottest September On Record Globally Pushes 2014 Closer To Hottest Year On Record: "Last month was the warmest September globally...
...since records began being kept in 1880, NASA reported Sunday. January through September data have 2014 already at the third warmest on record. Projections by NOAA make clear 2014 is taking aim at hottest year on record. Remarkably, this September record occurred even though we’re still waiting for the start of El Niño, which reveals just how strong the underlying trend of human-caused warming is. It’s usually the combination of the long-term manmade warming trend and the regional El Niño warming pattern that leads to new global temperature records. In this country, temperatures were quite hot in the West, and just ‘normal’ or very close to the 1951-1980 average in the East, as this NASA chart shows..."
It is not at all clear to me, however, whether this is going to be an El Nino year. I am told that the odds are only two in three. And the forecast errors over the past six months have all been in the "less El Nino than expected" direction...
Liveblogging World War II: October 13, 1944
On the Eastern Front... In Latvia, elements of the Soviet 2nd and 3rd Baltic Fronts break through the German defensive positions around Riga, the capital city. During the day, Soviet forces reach the outskirts of the city.
On the Western Front... Elements of British 8th Corps (part of British 2nd Army) launch attacks toward Venlo from Nymegen. Around Aachen, US 1st Division of US 19th Corps (part of US 1st Army) enters the city from the east and is engaged in street fighting.
Over Liberated Belgium... The first German V1 and V2 attacks land on the port of Antwerp.
In Italy... To the west, forces of US 5th Army continue fighting south of Bologna. In the east, the British 46th Division, part of British 5th Corps (part of British 8th Army), captures Carpineta.
In Greece... Advance elements of a joint British-Greek force land at Piraeus.
In Formosa... For a second day, US Task Force 38 (Admiral Mitscher) launches air strikes on Japanese positions. Altogether, American aircraft record 2350 sorties and lose 48 aircraft. The Japanese defenders attack with some 190 aircraft. The USS Franklin is lightly damaged and the Australian cruiser Canberra sustains heavy damage in the Japanese counterattacks.
October 12, 2014
Monday DeLong Smackdown: Macroeconomy Mean-Reversion Edition
Robert Waldmann saves me from having to read further in David Graeber's Debt: The First Five-Thousand Mistakes this Monday morning:
On unemployment-rate mean-reversion:
Robert Waldmann: "I will attempt a DeLong smackdown...
...Your analysis is notably different from Paul Krugman's analysis of private sector employment.
This is not odd--notoriousl,y unemployment has returned to normal partly through a decline in labor force participation. But wait, he says this recovery is a lot like the last recovery.
The difference is that you impose the assumption that everything before 2008 was the same. In contrast, Krugman argues (and argued in 2008) that financial crisis recessions are different from inflation fighting recessions. Spring 91 through (at least) Spring 93 saw the "jobless recovery". In 1993 you were attempting to understand why things were different pre- and post-1991. The 2001 mini-recession was followed by recovery with declining employment--the "job-loss recovery". At the time, you wrote something was going very wrong with the US labor market. Now there is a desperate need for jobs and you don't see a pattern in jobless, job loss, and job lust.
With a bit less reliance on vulgar empiricism, of course there was, from 1945 through 1984 at least, a strong force pushing the unemployment rate towards something someone thought was the NAIRU. That force is called the FOMC, or the target Federal Funds rate. It makes no sense to look at the univariate dynamics of unemployment. We have good reason to believe that what happened is that the FOMC decided to cause recessions to fight inflation and then, when it was satisfied, cut the target federal funds rate hundreds of basis points (or about a thousand in 1980 and 1982).
When Lehman collapsed the rate was around 2%. It couldn't be cut by 5%. Here part of the problem is that the standard definition of recessions convinced the business cycle timing committee to say the last one started December 2007. But there was a huge change in September 2008. Note the committee became super famous during the period of occasional inflation-fighting recessions. The idea that there is a clear peak and trough makes sense when they correspond (with a lag) to FOMC decisions to start then to stop a recession. This analysis doesn't even bring up financial crises, deleveraging or balance sheets. It's really just that the last 3 recessions started at times of low inflation (and therefore relatively low nominal interest rates) because the didn't start because of a perceived need to fight high inflation. So ZLB so liquidity trap.
Also, I note the qualifier "US" before economy. You have to include that because Europe shows no such strong reversion of unemployment. Nor does Japan (not that they have or ever had high unemployment--but it did shift from very low to low and stayed there). Now there are stories about why the USA is different.
Finally, in what sense are you a new Keynesian? On what issue where new and paleo Keynesians disagree do you side with the new Keynesians? NK models revert to the steady state. This is a methodological a priori--it does not follow from core assumptions which allow indeterminacy under conditions which are assumed not to hold, because we just can't allow indeterminacy.
The assumption that macro is stationary deviations around a smooth trend makes no sense for Europe or Japan. The only case that sortof worked was the USA. The Euler equation has a central role in NK models. You have argued in this blog (correctly) that it has no useful place in macro. In NK models future marginal costs are critical to price-setting to the considerable extent that they are predictable. Again and again you have asked New Keynesians if they really believe this. Never and never have you received an answer.
So I ask: in what ways are new Keynesian models better than or as good as old Keynesian models? Note I am not asking for an argument that, on balance, they are an improvement. I am asking for any advantages, of any sort, related to any aspect of macroeconomics.
Yes, I did worry in 1991-94 and 2001-05 that financial-crisis recessions saw slower labor market recoveries than did inflation-control recessions. But I did not worry enough.
Yes, I did understand that an inflation target of 2%/year was imprudent because it made it difficult to use standard monetary tools to stabilize aggregate demand, but I did not worry enough.
Why did I fall to worry enough? Because even when conventional monetary-policy tools and channels are tapped out, non-standard monetary policy, banking policy, housing policy,loan-guarantee policy, and fiscal policy remain powerful. Surely Bernanke, Geithner, and company understood that their task was to stabilize nominal GDP? Surely they understood the tools at their disposal?
Silly me...
In what way are new-Keynesian models better than paleo-Keynesian models? At fitting the time series, they aren't. At helping us understand the mechanisms behind macroeconomic fluctuations, they aren't. At disproving Robert Lucas's contention that economists could only reach Keynesian conclusions by fudging their microfoundational homework, they are excellent.
Mean Liberals Won’t Let Gov. Brownback Save Kansas With Magic Tax Cuts, Unfair!: Live from the Roasterie
Kaili Joy Gray: Mean Liberals Won’t Let Gov. Brownback Save Kansas With Magic Tax Cuts, Unfair!: "Sure, Gov. Sam Brownback has made a mess of Kansas...
...But that’s not why he’s about to be fired by the voters. It’s because of the evil liberals, and the evil media (which is also liberal and and also evil), refusing to let his Grand Master Plan work, which it totally would… eventually:
I think they (the mainstream media) want what’s happening in this state to fail that they’re shopping for a factual setting to back that up because it’s working. I think the left is just so desperate. They want this model to fail so bad that they can’t wait for it to and they just want to get me electorally before we get on through this and prove that this is working.
The plan, which is totally working except that it’s not but it totally will if given enough time, is to give a bunch of tax cuts to the rich, shame any moderate Republicans who dare to object, and then kick back and let Kansas become a conservative utopia of abortion-free tax-free liberty. That’s always the Republican plan, and it’s always going to work… one day. If only dumb liberals and their dumb media would stop pointing out how much it’s not working because cutting all the taxes mean there is no money for stuff and things that voters like. But just give it enough time! Give Brownback another term! Magic tax cuts are real!...
Liveblogging World War II: October 12, 1944: Wendell Wilkie's Funeral
Eleanor Roosevelt: My Day: October 12, 1944:
Yesterday afternoon I represented my husband at Wendell Willkie's funeral.
Only twice did I ever have the opportunity of meeting Mr. Willkie personally, and I never had an opportunity to talk with him. Yet no one who has watched his political career during the past few years could have failed to recognize the growth of the man and his great leadership qualities.
The loss of a man of courage is deeply felt at all times by any American citizen as a loss to the country, but especially at the present time it affects each one of us to know that such potentialities for good leadership have been removed from this troubled world. It leaves us all poorer; for men of honest convictions, though they may differ, are bound to make a contribution to the thinking of the world.
I never saw a church with so many flowers, which spoke of the love that people felt for this man. I know that among the friends who knew him well there was the deepest sense of personal loss, as well as of public loss.
Mr. Willkie's son, who is on the high seas and will never see his father again, has nevertheless something bequeathed to him which will be very precious as the years go on. The gift of making friends, and of binding his followers close, is a thing one's children are always grateful for, for it means much to them throughout their lives. To Mrs. Willkie and all the family, the heart of this whole nation goes out in sympathy.
Mr. Willkie placed great emphasis on the need we have in this country to be just to all of our citizens, because without equality there can be no democracy. His outspoken opinions on race relations were among his great contributions to the thinking of the world. I thought of that last night when I attended a "register and vote" rally in Harlem. In that great crowd of people, when his name was mentioned, it was quite evident that he was held in great respect and affection.
I came down on the night train, and this morning had a very large gathering at my press conference, which I think was largely because it happened to be on my birthday. Everyone wanted to see if, having lived 60 years, a very sudden change had taken place overnight in my appearance!
Noted for Your Morning Procrastination for October 12, 2014
Over at Equitable Growth--The Equitablog
Talking Points: Global Cross-Fire: Secular Stagnation or Policy Paralysis?: (Early) Monday Focus for October 13, 2014 - Washington Center for Equitable Growth
Morning Must-Read: Heather Boushey and Carter Price: How Are Economic Inequality and Growth Connected?: A Review - Washington Center for Equitable Growth
Morning Must-Read: Paul Krugman: Europanic 2.0 - Washington Center for Equitable Growth
Morning Must-Read: Dean Baker: David Leonhardt Wonders Why Its Cold In the Winter and Wages Aren't Rising - Washington Center for Equitable Growth
Plus:
"The most interesting subplot of 2012 US election coverage was the battle between the poll-oriented quants--most famously Nate Silver--and sundry television know-nothing pundits who insisted based on their guts that Mitt Romney was going to pull it out. The 2014 horserace has produced... a proliferation of quantitative models based on poll aggregation... [and] its own entertaining feud between the famous, entertaining, and media-savvy Nate Silver and the less-known Princeton University scientist Sam Wang.... We're never going to know which model is correct.... If we got to look at 100 or a 1,000 midterm elections, we'd end up with a pretty good sense of whether Silver's forecast or Wang's forecast is the more accurate one. But elections simply don't happen that frequently.... Which isn't to say we should go back to the bullshitting-on-television approach to understanding elections. Rather, we should try to remember the high-level points that all these models have in common, namely "the candidate leading in the polls usually wins" and "aggregating polls is more accurate than looking at particular ones." Unlike fussing over the details of 51 percent vs 57 percent, these are actionable insights.... Smart people are really good at devising sophisticated explanations for why their preferred outcome is also the likely one..."
Liveblogging the American Revolution: October 12, 1776: Throg's Neck
During the night, the British army began to cross to Throg’s Neck (also known as Frog’s Point). Captain Henry Duncan of HMS Eagle, oversaw part of the crossing. He wrote:
About three o'clock [on] Saturday morning, the 12th, the troops were embarked in the flat boats and bateaux, to the number of between four and five thousand men; the Guards and 42nd regiment, between fourteen and fifteen hundred men, were embarked on board sloops under my direction. At daybreak in the morning the boats set off, and no sooner had they put off, with an amazing strong tide, but it came on a fog equal to pitch darkness, with now and then an interval of light for a few seconds. The boats were put off; to attempt to stop them would have been very dangerous, for the headmost boats must have anchored, and the boats that followed would in all probability run [a]foul of them, to the imminent danger of sinking each other; the admiral [i.e., Vice Admiral Richard Howe], therefore, rather chose to run the risk of passing Hell Gate with all the boats in that rapid tide and dark fog. I went astern and ordered all the boats to move forward. Soon after their putting off, a galley towing one of the artillery boats, in endeavouring to cross a vessel lying in the passage, towed her athwart hawse; the boat ran directly up her cable, and overset instantly. Many of the people were picked up; there were three field-pieces lost, and I suppose five or six people. There were very few people in the flat boats [that] had ever been through or knew anything of the passage of Hell Gate. This made the danger much the greater.
Captain George Harris (grenadier company, 5th Regiment of Foot) also had a close call:
the point of an island… divides the river into two rapid streams, and causes a very dangerous whirlpool…. through the ignorance of our pilot, we were on the edge of the pool… too late to avoid the suction, and found ourselves, circle after circle, attracted to the centre, in spite of all our efforts, till at last the boatmen were on the point of quitting their oars, despairing of escape, when, animated I suppose by the love of life, I began to storm at them for their cowardice, and made them stick to their oars. We at length perceived that we made progress, and emerged from the whirlpool, escaping without other accident than the dislocation of a man's wrist.
Lieutenant-General Henry Clinton had much praise for Vice Admiral Richard Howe and his fellow Royal Navy officers for getting the army through Hell Gate “almost miraculously” despite the heavy fog and treacherous waters. He added:
About eight o’clock we arrived off Frog’s Point, where we found a frigate stationed to cover our embarkations. A few rebels made their appearance as we approached the shore; but some scattering shots soon dispersed them, and the landing was effected without loss.
Two watercourses lay between Throg’s Neck and the American army: Westchester Creek and the Bronx River. Securing the passage over Westchester Creek was especially important as a single bridge over this creek provided the only good route inland. Therefore, according to Clinton, “As soon as the troops could be formed, we pushed for Westchester Bridge in hopes of securing it.”
The area nearest Throg’s Neck was defended by Colonel Edward Hand’s brigade of Pennsylvanians (this included Hand’s own 1st Continental Regiment, Colonel Henry Haller’s Berks County Regiment, and Colonel James Cunningham’s 1st Lancaster County Regiment; see footnote).
Major-General William Heath had previously stationed “25 picked men” from Hand’s brigade to watch over the Westchester Creek bridge at all times, “and, in case the enemy made a landing… to take up the planks of the bridge”.
The men quickly performed their duty, and when the head of the British column appeared, they “commenced a firing with their rifles.”
Clinton lamented: “the enemy had been too quick for us”.
The British then attempted to bypass the wrecked bridge and cross at the head of Westchester Creek. However, according to Heath, they “found here also the Americans in possession of the pass.”
Both sides called up reinforcements.... Heath stated that:
he immediately ordered Colonel Prescott, the hero of Bunker Hill, with his regiment, and Captain-Lieutenant Bryant of the artillery, with a 3 pounder, to reinforce the riflemen at West Chester causeway [i.e., the bridge]; and Colonel Graham of the New-York line, with his [militia] regiment, and Lieutenant Jackson of the artillery, with a 6 pounder, to reinforce at the head of the creek; all of which was promptly done, to the check and disappointment of the enemy.
Captain-Lieutenant Archibald Robertson (Royal Engineers) wrote that: "the [British] guns were taken forward to the bridge, 16 pieces” but no attempt was made to take either pass by force. Instead, he wrote, “we were ordered to encamp.” He noted that the remainder of the day was punctuated by “popping shots across the water.”
George Washington arrived in person to examine the situation of the British army. He later wrote that Throg’s Neck “is a kind of island” although “the water that surrounds it is fordable at low tide.” However, he was pleased to find that “The grounds from Frog's Point are strong and defensible, being full of stone fences, both along the road and across the adjacent fields, which will render it difficult for artillery, or indeed a large body of foot, to advance in any regular order, except through the main road.” He then ordered fortifications erected to guard the road and the pass at the head of the creek. He noted that “Our men, who are posted on the passes, seemed to be in good spirits”.
These fortifications, according to Hessian Major Carl Leopold Baurmeister, soon made “everything still more unapproachable.” At the same time, the Americans “cannonaded the camp of the 71st Regiment, which lost six killed and three wounded.” He claimed that “If the rebels had accurately aimed their guns, the balls of which flew over English headquarters, they could have annihilated the Guards and the 33rd Regiment in the reserve.”
October 11, 2014
Over at Equitable Growth: Talking Points: Global Cross-Fire: Secular Stagnation or Policy Paralysis? (Early) Monday Focus for October 13, 2014
"Secular stagnation" is a misleading phrase. It was coined by Alvin Hanson in the 1930s to describe a fear that an exhaustion of technological opportunities in a world monetary system that still possessed a nominal anchor to gold would generate a sub-zero full-employment Wicksellian natural rate of interest. But we don't have an exhaustion of technological opportunities. We don't have a monetary system with a nominal anchor to gold.
What we do have are rates of inflation in the DMs that expose us to severe downside macroeconomic risks, and a lack of risk tolerance and risk-bearing capacity in the United States that keep even the lowest of attainable safe interest rates from producing high enough equity and capital valuations to make it profitable to boost investment enough to push DM economies to anything like full employment.
There have not yet been any convincing stories of how a trend growth drop would have emerged in the absence of the investment shortfall, the labor skills atrophy, and the other channels of "hysteresis" that have been in operation since 2008.
The only major supply shock in the past decade has been a positive one: the unexpected emergence of new hydrocarbon-extraction technologies like tracking. We could have a large adverse hydrocarbon-supply shock from political turmoil at the borders of Muscovy. But we have not yet.
What to expect from interest rates? They will, of course, fluctuate. The modal scenario I see in the United States is one in which the Federal Reserve begins raising interest rates too early--a la Sweden at the start of this decade--and then has to return to the ZLB in a year or two as the economy weakens. The optimistic scenario is that that of the smooth glide-path to the normalized, Goldilocks economy. The pessimistic scenario is another adverse shock hits demand while the Federal Reserve is still too close to the ZLB to effectively respond, and political gridlock gives the United States another lost decade.
What to expect from interest rates? They will, of course, fluctuate. The modal scenario I see in the Eurozone is one of continued waves of crisis as Eurozone breakup fears cause spikes in interest rates in the European periphery, as the ECB then does enough to calm markets but not enough to generate recovery, that Germany makes covert fiscal transfers to keep the pain low enough to keep the Eurozone together--and winds up spending much much more than if it had bit the bullet back in 2000. In that scenario German growth over the medium term remains at best adequate as the chronic Eurozone crisis both diminishes confidence and keeps German exports competitive.
The pessimistic scenario is one of Eurozone breakup--with German interest rates even lower than they are, and peripheral European interest rates high with redoubled risk premium. The optimistic scenario is that somehow, some way, the Confidence Fairy appears and the Eurozone has a smooth glide-path to a normalized, Goldilocks economy.
The source of the chronic crisis is a shortage of aggregate demand coupled with deep structural woes that originated in the decision by German banks to loan massive amounts to the Eurozone periphery. Those loans pushed costs in the Eurozone periphery up to levels that are in strong disequilibrium in the absence of continued capital outflows from Germany.
Since the chronic crisis had a German origin--in the lending decisions of German banks--it is only appropriate that it have a German solution--adjustment via German fiscal expansion and via the implicit real debt writedowns generated by moderate German inflation should be part of the solution.
Back in 1829, the young British economist John Stuart Mill was the first to argue that the market monetary economy there would not be enough spending to employ everyone who could be profitably employed at the wages they demanded if and only if the economy lacked enough cash and cash-like assets to make households, businesses, and savers as a group happy with their holdings of means of payment and potential collateral.
The provision of those cash and cash-like assets has to be the business of the national or currency-area government--if not of a super-continental monetary and financial hegemon--because no private entity has the power to make its liabilities legal tender and thus the ability to guarantee their acceptance in transactions and as collateral.
The ECB is tasked with this Millian objective of providing the eurozone economy with the means of payment and stores of value--cash and potential collateral--that the economy needs. The ECB is failing.
Fourth quarter-to-fourth quarter real GDP growth in the eurozone in 2013 was 0.5%. Fourth quarter-to-fourth quarter real GDP growth in the eurozone in 2013 looks to be 0.4%. December-to-December inflation in the eurozone in 2013 was 0.9%. December-to-December inflation in the eurozone in 2014 looks to be 0.0%. The ECB's annual inflation target is 1.75%. Given the potential for catchup in the European periphery to higher productivity standards, that can only be attained via nominal eurozone GDP growth of 4%-5%/year. The 1.4% nominal GDP growth we saw in 2013 and the 0.4% nominal GDP growth it appears we will see in 2014 tell us that the ECB has fallen further behind the curve than it was at the end of 2012: 7.2%-points further behind the curve than it was then.
One possibility is that the ECB is failing because it cannot do so, for every time it creates a reserve deposit it does so by withdrawing A high-quality liquid asset from the private market place, and so to first-order leaves the stock of cash plus potential collateral unchanged. Perhaps the ECB cannot carry out its million objective without engaging in what would be regarded as fiscal policy.
Another possibility is the ECB is failing because financial Germany believes that the ECB's target must be not a 1.75%/year inflation target for the eurozone, but a 1.5%/year or less inflation target for Germany--and that Mario Draghi is not powerful enough to overrule financial Germany in the corridors of power in the ECB and hence cannot do whatever it takes.
In this context, I am reminded of Ludger Schuknecht's exchange with Martin Wolf back in 2012, in which Schuknecht said, among others things: "Mr Wolf’s solution... is risk transfer via eurobonds... and demand stimulation via cheaper money and less fiscal consolidation in Germany. But the public and markets have been led to believe in short-term measures for far too long...." "expansionary policies and weak fiscal positions... created the current problems..." "fiscal consolidation and structural reforms... have invariably succeeded wherever they have been implemented..." "any decision to disregard the rules or introduce ill-suited tools such as eurobonds could undermine... confidence..." "Germany must not undermine its role as an anchor of stability via inappropriate and ineffective fiscal stimuli..." "German and European interests are indeed very much aligned and they are reflected in the jointly agreed strategy...": the policies that the eurozone has undertaken over the past 2.5 years were, to his eyes back in 2012, already dangerously radical and already pushing the utmost of the envelope that Germany could allow. Yet now we clearly need more...
Noted for Your Morning Procrastination for October 11, 2014
Over at Equitable Growth--The Equitablog
Unclear and Inadequate Thoughts on Financial Stability and Monetary Policy Once Again: The Honest Broker for the Week of October 17, 2014 - Washington Center for Equitable Growth
Morning Must-Read: Nick Rowe: Helicopter Money without the Helicopter - Washington Center for Equitable Growth
Morning Must-Read: Barry Eisler: Franklin Foer: "Stop Amazon, Keep Publishing Exactly As It's Always Been!" - Washington Center for Equitable Growth
Morning Must-Read: Daniel Davies: A Disquisition on the Nature of Debt - Washington Center for Equitable Growth
Nick Bunker: Weekend reading - Washington Center for Equitable Growth
Josh Zumbrun on the affluence gap in SAT scores
Prakash Loungani answers a few questions about global housing markets
Ylan Mui posts 5 graphs showing how the global recovery has yet to take off
The Economist looks at the potential slowdown in Chinese productivity
Izabella Kaminska points out Europe appears to be the new global lender
Paul Krugman reviews Martin Wolf’s “The Shifts and the Shocks”
Plus:
Things to Read on the Morning of October 11, 2014 - Washington Center for Equitable Growth
Must- and Shall-Reads:
Andy Dubbin: As sea level rises, so does money spent denying it
The Oatmeal: Christopher Columbus was awful (but this other guy was not)
John Podesta: Deficit anxiety is not the answer. Here’s what America needs to do
Clay Shirky: Publishing and Reading
Bo Rothstein and Eric Uslaner: All for One: Equality, Corruption, and Social Trust
Daniel Davies: A Disquisition on the Nature of Debt
Barry Eisler: The Heart of the Matter: Franklin Foer: "Stop Amazon, Keep Publishing Exactly As It's Always Been!"
Nick Rowe: Helicopters, redemption, and the target
Brooke Masters: Satya Nadella’s bad karma over remarks on women’s pay
And Over Here:
Liveblogging World War II: October 11, 1944: Bill Biega After the Warsaw Uprising (Brad DeLong's Grasping Reality...)
Weekend Reading: Daniel Davies: A Disquisition on the Nature of Debt (Brad DeLong's Grasping Reality...)
For the Weekend: Serena Ryder (Brad DeLong's Grasping Reality...)
Unclear and Inadequate Thoughts on Financial Stability and Monetary Policy Once Again: The Honest Broker for the Week of October 17, 2014 (Brad DeLong's Grasping Reality...)
Daniel Davies: A Disquisition on the Nature of Debt: "Debt... is a promise to pay back a specific amount of money at a specific time. Why is it so popular--why do people always seem to end up getting into it? Why, for example, don’t people make more equity investments?... Debt has one big advantage... the same advantage that market economies have over command economics--it’s really really efficient in terms of the amount of information that people need to gather about each other. If you’re lending money under a debt contract, all you need to think about is 'Do I think this guy is good for the money?', and all the borrower needs to think about is 'Can I pay this back?'. If you’re trying to make an investment and share the risks, all sorts of other questions come into play: 'How much could this be worth in a really good outcome? What further projects might grow out of this one? What effect will the sharing of the upside and downside have on the way the thing is managed? Am I selling my shares too cheap?.... David Graeber wrote a whole gigantic book, one of the messages of which was that from an anthropological view, debt contracts denatured exchange relationships and took them out of their context of cultural human interactions, but in my review, I noted that Graeber didn’t seem to appreciate the extent to which this is a collossal time saver.... And this even extends into credit analysis. I once calculated, to win a bet... that... if banks were to carry out a full credit assessment on all of their counterparties every time they incurred a new exposure then this would take up all of the time of every Chartered Financial Analyst ever to have got the qualification, doing nothing other than these credit checks. It’s literally impossible for the system to work without a degree of blind faith that most credits are money-good. The conclusion... is that... from both the banks’ and Greece’s point of view, these weren’t bad loans--they were good loans which went bad.... All of which isn’t to say that the banks deserved to get paid back, quite the opposite... the 70% writedowns that they took should... be regarded as... just punishment.... Everyone made decisions just as bad as the Greeks, but as I say, Greece was less able to deal with the consequences..."
Barry Eisler: The Heart of the Matter: Franklin Foer: "Stop Amazon, Keep Publishing Exactly As It's Always Been!": "If Foer wants to claim Amazon is a 'monopoly', that’s just routine thoughtlessness.... But then he goes on to make a claim that can only be the product of shocking ignorance or brazen deceit: 'That term [monopoly] doesn’t get tossed around much these days, but it should.' Holy shit, 'Amazon is a monopoly' doesn’t get tossed around much these days?! Did Foer even read the George Packer piece he cites?...Has he read David Streitfeld in the New York Times, or Laura Miller in Salon?... Just Google “Amazon Hachette Monopoly” and see what you come up with. I see three general possible explanations for Foer’s remarkably inaccurate claim: 1. Foer is embarrassingly ignorant.... 2. Foer is aware of how hoary the 'Amazon is a monopoly' meme has become... but doesn’t want to admit he has nothing new to say.... 3. Foer is aware of how hoary the 'Amazon is a monopoly' meme has become, but believes no other activist... has been sufficiently alarmist... is adequately conveying just how terrifying it all is. 4. Foer... also knows you can lend an air of false gravitas to bogus claims and conspiracy theories by implying the mainstream media is too cowed to Speak The Truth.... Really, is it possible to write a 3000-word article--with references to articles that themselves claim Amazon is a monopoly--and genuinely believe 'the term monopoly doesn’t get tossed around much these days'?... The tendentiousness in Foer’s argument isn’t even what’s most interesting about it. What’s implicit is even more so: that it would actually be bad if more people could afford to buy books by Salman Rushdie and Jennifer Egan. How is this view any different from the arguments that must have been made against the Vulgate Bible, or the Guttenburg printing press? 'Tsk, isn’t this just going to make reading more accessible to the unwashed masses?' If you haven’t read it already, I can’t recommend highly enough this article by Clay Shirky about the aristocratic, elitist, narcissistic worldview always inherent in the minds of people like Foer..."
Nick Rowe: Helicopters, redemption, and the target: "What makes helicopter money truly helicopter money... is the announced increase in the price level target or NGDP level path target that accompanies the helicopter. 'Helicopter money' with no change in the target is not like Willem Buiter's helicopter money, because that extra 'helicopter money' will need to be redeemed at some (unknown) time in the future, at the same future price level as before, and so the 'helicopter' increases the real value of government liabilities. Furthermore, if the central bank announces an increase in the NGDP level path target, that reduces the real value of government liabilities, and this converts some of the previously existing money into helicopter money ex post facto. You don't need the helicopter. If the government halves Pm, it converts half the money that already exists into helicopter money..."
Brooke Masters: Satya Nadella’s bad karma over remarks on women’s pay: "It is hard to believe he would have said the same thing to a man.... At Facebook, they lean in. At Microsoft, they lean out. This week, when Satya Nadella, chief executive of the Redmond, Washington-based software group, faced a question about what women should do to be paid more, he firmly stuck both feet in his mouth. 'It’s not really about asking for the raise, but knowing and having faith that the system will give you the right raises as you go along', he said, adding that such patience was 'good karma'."
Should Be Aware of:
Arthur I. Miller: Imagery in Scientific Thought
Daniel Davies: "I can work out Greek words phonetically, as long as they stick to using letters that are also the names of important physical constants or option pricing parameters. And once you’ve worked out the transliteration, most of the stuff that’s on billboards or menus is going to sound like either the English word or the French one or the Italian one."
Matt O'Brien: Uh-oh, the credit rating agencies are up to their old tricks again: "As far as financial crisis villains go, the credit rating agencies never get enough, well, credit. But now they're reminding us that even—or especially—nincompoops can blow up the global economy when you play them off against each other with the promise of a quick buck.... It was dumb enough to create a system that encourages the credit rating agencies to take a Panglossian view of the bonds they're supposedly rating. It'd be even dumber to leave it in place after we've seen what a disaster it is."
Dara Lind: This immigration program drove a state official to suicide. It could give Dems the Senate: "One of the insane and convoluted subplots in South Dakota's insane and convoluted Senate race — which could be the race that decides which party controls the Senate after Election Day — is a scandal involving the Republican candidate, Mike Rounds, who's the former governor of the state. The scandal became public last fall, after one of Rounds's former cabinet officials committed suicide. It turned out that he was facing a likely indictment for "diverting" (i.e., stealing) $550,000 in state funds when he killed himself. Since then, dribs and drabs of information have come out about massive conflicts of interest in the way Rounds' administration administered its EB-5 visa program, an obscure initiative that is designed to attract foreign capital to the United States but which is often criticized as an open invitation to corruption. Most recently, it came out last week that Rounds had actually been named in a lawsuit that one visa recruiter filed against the state — even though Rounds had been saying he was not involved. The saga involves a failed beef plant, some shady public-private partnerships and millions of dollars pocketed from foreign investors. But at its center is the EB-5 visa — which lets immigrants come to the US and get green cards for putting hundreds of thousands of dollars into US businesses."
Mohamed A. El-Erian: Why Is the Fed Thinking Globally?: "Outside of crisis periods -- and we aren't in one -- the U.S. Federal Reserve normally behaves and speaks as if the U.S. is essentially a closed economy. Not so at its last policy meeting. The minutes released this week contain an unusual focus on both the world economy and the value of the dollar; and the drivers are a mix of old and new -- at least they should be..."
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